3 Myths About the Recording Industry Debunked

When emotion drove stock-market prices to absurd new highs during the 90s tech boom, Fed Chairman Alan Greenspan famously said the financial markets were going through a period of irrational exuberance. The flip side of this is periods of groundless pessimism. Right now, the music industry is at the tail end of one of those periods.

The media havent helped. Since 1999, there has been an unyielding stream of stories talking about the music industrys ill health  Burn, Baby, Burn (Time, May 20, 2002); Fight Back or Death Rattle? (The Economist, March 31, 2004); iTunes and Lawsuits: The Labels Still Dont Get It (Newsweek, May 3, 2004). These stories have given many people the impression that the industry is in a death spiral.

Yet the business has been restructuring itself in insanely positive ways. Here are a few myths about todays record business:

MYTH NO. 1: The prevalence of file-trading services and free music on the Internet indicates that recorded music may no longer be an economically viable business.

FACT: Among the only long-term truths we know about downloadable music is that people have such an instinctual desire for it that file trading spread before there was an infrastructure to support it. The major labels have been trotting out p2p file sharing as the rationale for their difficulties for years now, but no one believes it. In April, two business-school professors  Harvards Felix Oberholzer-Gee and Koleman Strumpf from the University of North Carolina  even released a study showing there was no statistical relationship between file sharing and subsequent dips in sales.

Another thing we know is that music is one of a trio of forms thats expandedquickly across the Web  the others being pornography and games. This raises a question: If free downloading damages the music industrys ability to make money on music, why doesnt all the free pornography on the Web have the adult industry up in arms? Whats the difference between rock & roll, pervy movies and Tetris?

The difference is public relations. In a pre-Web world, music was already the most visible (or audible) form of entertainment. When p2p file trading arose, musics former associations with street parties and boomboxes lost ground to associations with obscure computer programs like BearShare, BitTorrent and Kazaa v2.6.3. Overnight, music went from being a cool, highly visible medium to a type of surreptitious computer file hoarded by tech geeks.

By contrast, pornography went mainstream. Where it was previously the reserve of video-store back rooms, scrambled TV channels and the high shelf at the local magazine shop, now you could check the history tab on a Web browser and learn that your boyfriend, your dad and even your priests enjoyed JPEGs of girl-on-girl action.

This might lead you to believe that porn was growing ubiquitous while music was receding from the publics imagination, but the truth is more tricky than that. The adult entertainment industrys effort to go mainstream has been well served by highlighting its Web-borne popularity. Its lent porn stars like Jenna Jameson the respectability to pen a best-selling autobiography. It gave the porn industry the credibility it needed so that even The New York Times magazine parroted its $10-billion-to-$14-billion-a-year revenue estimates in a 2001 story (later disputed by Forbes). By contrast, the music industry has been well served by making a lot of noise about its struggles, which has allowed it to gain leverage with regulators and legislators, cry wolf during a period of receding sales and prime the pump to make even more money down the line.

MYTH NO. 2: Record sales are down. The situation is only growing worse.

FACT: The music-industry lobby would have you believe that sales are down and sinking  as would the general tenor of the medias industry coverage. But this just isnt true. In 2004, record sales plainly seem to be rising. Soundscan has registered 252 million records sold in 2004 to date. Compare this with 235 million sold in the same period of 2003, and thats an increase of over 26 million units, or 6.35 percent.

The RIAA might argue that this is direct result of the 1,500 lawsuits theyve brought against file traders since September 2003. Theres some basis for that. In January, the Pew Internet & American Life Project released the results of a survey that said 17 million fewer Americans admitted to downloading from file-sharing services than did so in a similar poll conducted in 2003. However, it seems unlikely that those former downloaders are responsible for the 26 million additional CD sales weve seen in 2004. Most likely the increase in record sales is due to 26 million people wanting new releases by Norah Jones, the Beastie Boys and Prince that werent available the year before.

MYTH NO. 3: Musicians no longer need the record industry. The Internet and other new technologies make this a new era of do it yourself.

FACT: There are more opportunities than ever for musicians to find a niche in the industry, but doing it yourself  through the Internet or any other means  is harder than ever.

Technically, some things have gotten easier for artists over the past decade. Digital recording makes it more possible than ever to produce high-quality recordings on the cheap. The Internet makes it easier than ever to publicize music of any stripe. And judgment-blind yet heavily trafficked outlets like CDBaby.com enable literally anyone to distribute their work.

Unfortunately, all this really means is that now theres an infrastructure to support everyones delusions of stardom. As any episode of American Idol will tell you, there are many people who want to be heard. If all 100,000 of your fellow artists can now make and market records, the main thing thats been created is a lot more competition and noise. If you analyze things from a businessmans perspective, its hard to see how artists are gaining much from the newfound ability to cut bad records, erect a Web site and put their crap on sale. Does anyone really care about Dan J. Schultes new release, Halloween Returns to Haddonfield: The Official Halloween 25th Anniversary Convention soundtrack, available now on CDBaby? Does anyone even know it exists?

Sure, its a lot easier nowadays for artists with a fan base to market their wares. Teen-pop has-beens Hanson, crooner Michael Bolton and earnest folkie Natalie Merchant each declined major-label deals in the past year to release their own records. But its safe to say these are not the kinds of artists punks were thinking of when they popularized the term DIY. Its an outmoded notion in 2004; a better one is Who should I associate myself with?

Community is important to cut through the noise, and like it or not, those communities are often organized around the industry trying to make money off music  record labels, clubs, promoters, magazines et al. While artists know best how to make art, businesspeople know best how to build relationships and gain leverage. So unless youre an artist with an already robust career or an admiration for the marketing savvy of P. Diddy and Malcolm McLaren, its more important than ever to figure out how to interact with the music biz.